Eye On the Money: Test Your Debt Knowledge

With the popularity of credit cards, mortgages and car loans, most people can't avoid being deep in debt at least once in their lives. Are you digging yourself deeper into a debt hole or gradually crawling out? Knowing more about your options and their consequences will help you handle debt better and may get you out sooner. Take our quiz to see how much you really know about debt.

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Question 1 of 10

Which of the following would be considered "good debt"?

credit card debt

a mortgage

Taking out a mortgage on a home is generally a good kind of debt. Not only does a home loan typically have lower interest rates and tax benefits, but a house's value could increase over time, making it a good investment, unlike credit card or cash advance debt.

cash advance loan

Question 2 of 10

If you have a revolving credit account, credit card companies prefer that you:

pay your entire balance to them every month

pay most of your balance off every month

pay only the minimum payment to them every month

Because of the strategic combination of interest rate and minimum monthly payment, credit card companies make more money from you in the long run if you consistently pay only the minimum monthly payment.

Question 3 of 10

What does it mean for debt to be unsecured?

debt under a consolidation loan

debt that a company believes is unlikely to be paid back

debt not backed by collateral

Unsecured debt refers to debt not backed by collateral. Credit card debt is one such example of unsecured debt. A mortgage would be secured debt because it is backed by the house.

Question 4 of 10

Which of the following is NOT a benefit of debt settlement?

It will eliminate your debt.

You can pay less than what you owe.

It won't hurt your credit.

If you can get a lender to agree to debt settlement, it will probably mean you pay a lump sum of less than your total balance and will end your debt with them. However, it may end up on your credit report and probably make it harder to get a loan in the future.

Question 5 of 10

Which of the following is NOT a likely benefit of consolidating your loans?

It will get you a lower interest rate.

It will get you out of debt faster.

Most likely, consolidating your loans will mean a lower interest rate and one simple monthly payment. But it will also take you longer to get out of debt, and you'll pay more in the long run.

It will simplify your debt payments.

Question 6 of 10

Under the Fair Debt Collection Practices Act (FDCPA), which of the following is a debt collector allowed to do?

threaten to sue you

send you a postcard

sue you

Although they may have a legal right to sue you, debt collectors can’t use the threat of a lawsuit to coerce you into making a payment. The FDCPA also forbids them from contacting you via postcard. Additional federal law prohibits various other means of contact, too.

Question 7 of 10

Which of the following should be considered a last resort to debt problems?

bankruptcy

Entering into bankruptcy can help to alleviate your debts, but it'll also affect your credit rating and your ability to borrow money in the future. So although it can be a good option for those who need it, personal bankruptcy should be a last resort after other alternatives have been exhausted.

debt settlement

debt consolidation loan

Question 8 of 10

What is the maximum number of years bankruptcy can stay on your credit report?

5 years

7 years

10 years

In most cases, negative information stays on your report for seven years. Bankruptcy, however, can stay on for 10 years.

Question 9 of 10

If debt collectors start to pursue old debt that has expired due to the statute of limitations, it is referred to as:

buried debt

dead debt

zombie debt

Zombie debt is old debt that has expired, is the result of identity theft or has been settled in bankruptcy.

Question 10 of 10

What's the most common kind of personal bankruptcy?

Chapter 9

Chapter 11

Chapter 13

The typical personal bankruptcy is called Chapter 13, in which the debtor retains some assets -- like a home or car -- and is required to adhere to a court-ordered debt repayment plan in which a percentage of his regular income is used to pay off creditors. Unless you're a municipality or a corporation, you probably won't be filing Chapter 9 or 11 (although people with very large debts can file for 11).